Advantages Of Mnes

In a competition business world, companies will do everything to increase firm performance in order to survive and operating company in the foreign country is the doable decision. In the empirical evidence below will show that the level that company operates business outside company’s country will enhance firm performance or not.

There are plenty of benefits for MNEs to expand international. The first advantage is from exploration and exploitation. Companies expand abroad for exploiting the local assets and increasing the competitive advantages in the global perspective (Madhok and Phene, 2001). Ruigrok and Wagner (2003) explain that in the external environment, companies will gain advantages by utilizing the imperfection in the international

Siddharthan and Lall (1982) state that the intensive level of internationalization brings more costs to companies. Internationalization brings threats to companies due to uncertainties and volatilities (Barlett and Ghoshal, 1988), such as local politics in each country. In the internationalization theory, the cost of internationalization is the communication cost between parent and subsidiaries countries, coordination cost, transaction cost, management cost and monitoring cost (Ruigrok and Wagner, 2003). The internationalization problems emerge because (a) the requirement of the high information-processing degenerate culture problem in MNEs. (b) the motivation problems that derived from cultural diversity within the company (Hofstede, 1980). (c) the agency problem concerning to geographic and cultural dispersion causes exponentially governance and transaction cost (Roth and O’Donnell, 1996). According to the Agency theory, the relationship between parent company and subsidiaries of MNEs can have a problem due to information asymmetry, since the parent company not always receives the information on-site in time or sometimes wants information that is unavailable at the time. Tallman and Lee (1996) support that the downside of being a MNE is at beginning, when the company operates in foreign countries, the company consumes a great deal of money to build a foundation in the foreign country and attempt

Grant (1987) states that the international diversifications such as geographic are able to enhance the operating performance, when the control variables are firm size, nationality and industry type. Tallman and Lee (1996) support that the MNEs tend to have a remarkable advantage with the reason of the higher level of firm specific advantages, the higher international diversification performance, rather than from the capabilities to multinationals to higher performance. Tsetsekos (1991) states that MNEs generate and arbitrage profits that enhances firm value. The arbitrage advantages are the exploitation of institutional imperfections, time to market and technological seeking (Baldwin, 1986; Kogut, 1983). Kim, Hwang and Burgers (1993) support that when companies have high level of internationalization, companies will have greater opportunities to leverage strategic resources due to the reduction of market risk, and subsequently company performance will be